Introduction

A monopoly is an industry in which one seller dominates or controls the industry. There are different kinds of monopolies. Consider, for example, the U.S. Postal Service and the Internet search industry. One company controls the delivery of first class letters. The government does not allow competition. On the other hand, in the Internet search industry, the government allows competition. There is one controlling and dominating firm (Google), because the firm delivers a service that people want and use.

The U.S. Postal Service does not have to fear potential competitors (in the area of delivering first class letters, providing passports, and a few other services). It does not have to operate at maximum efficiency, and does not have to keep its prices as low as it would if there had been more competition. Google does have to fear competitors, because of the threat of potential competitors (it already has some competitors, including Microsoft’s Bing, and Yahoo Search). If Google does not operate efficiently and if it does not keep delivering a superior product, then it will lose market share and lose advertising revenue. Google may be considered a near monopoly, but, unlike a government granted monopoly, it must behave as if there is substantial competition if it wants to survive.

This unit discusses the two types of monopolies, barriers to entry, profit maximization, and anti-trust laws.